Former Employer Refusing Variable Pay? Here's Your Legal Action Plan

One of my clients recently had a case which I am explaining below and if you are stuck in such similar situation, here is what to do.

Note: Due to attorney-client privilege, I cannot disclose complete case details or identify the actual parties involved. However, I am sharing the essential facts and legal approach so that if you find yourself in a similar situation, you can understand the available solutions and legal remedies.

TL;DR: If your offer letter lists variable pay as part of your CTC without calling it discretionary, the employer cannot deny it by citing an uncreated performance framework. A legal notice to the company, backed by a contract claim, often recovers the amount. You can also add a harassment claim, but separate them for strategic clarity.

Late last year, a senior executive — we'll call him Rohan Gupta — approached the Chamber of Advocate Sudhir Rao in Pune. He had joined a well-funded startup based in Pune and San Francisco in early 2025 as a Vice President. His offer letter clearly listed a 50% variable component as part of his total CTC, with no language calling it discretionary or performance-contingent.

Things turned sour fast. Just three months in, the founding team informally asked Rohan to resign. He did. He didn't serve his notice period — saving the company an extra month's salary. But when his Full and Final settlement came through, the variable pay was nowhere. He sent emails, submitted an impact document on a weekend as requested, and even rebutted the company's denial point-by-point. Silence for three weeks. The company's argument? Variable pay is discretionary, and no performance assessment was done — the same assessment they never started.

Advocate Sudhir Rao and his office argued that the company's own actions contradicted its defence. The offer letter created a contractual right. The company's request for an impact document showed they weren't treating it as discretionary. And the fact that they never created a performance framework — despite Rohan asking in writing before joining — meant they couldn't use its absence to deny payment. The case was built on the Indian Contract Act, not employment law. And here's the thing: a well-drafted legal notice to the startup's registered office in Pune triggered a settlement within two weeks. The domain-specific handling of contract-based claims — focusing on the letter's language and the company's admissions — made the difference.

Key Facts of the Case

• Rohan Gupta joined the startup in early 2025 on an offer letter listing variable pay as part of CTC — no discretionary condition.
• He was asked to resign informally by the founders after three months; no formal performance concerns were raised.
• He did not serve his notice period, saving the company one month of additional salary.
• The company denied variable pay, citing absence of a performance assessment — which they never defined or communicated.
• Rohan had written records of his pre-joining query about variable pay, left unanswered in writing by the company.
• The company requested and received an impact document from Rohan but never engaged with it.
• A senior company executive admitted in writing that Rohan was "asked to suggest the framework" — confirming none existed.
• The legal notice under the Indian Contract Act, 1872, secured a settlement without litigation.

The Direct Legal Answer

Is this a viable claim under Indian labour law?

Yes, but not under "labour law" in the narrow sense. This is a contract claim. The offer letter is a contract between you and the employer. If it says "variable pay" as part of CTC — with no phrase like "subject to performance" or "at the company's discretion" — then it's a promise to pay for work done. Courts have held that an employer cannot refuse to honour a contractual term simply because it didn't set up the processes to assess performance. Make no mistake: the burden is on the employer to show they followed a fair process, not on you to guess.

What are realistic outcomes if I send a formal legal notice?

Most employment disputes, especially at senior levels, get resolved at the notice stage. A letter from a lawyer citing the Indian Contract Act and demanding payment with interest often pushes the employer to settle. Litigation is expensive and reputationally risky for startups. So the next step is a clear, professional legal notice giving them 7 to 15 days to pay.

Can I pursue variable pay and harassment claims together?

Legally, yes. Practically, it's smarter to separate them. Send one legal notice for the variable pay claim — it's clean, contractual, and fast. For the harassment claim, you'd need to approach the Internal Complaints Committee under the Sexual Harassment of Women at Workplace Act (if applicable), or file a civil suit for damages if it's not gender-based. Mixing them in a single notice can confuse the issue.

Advice in Such Cases

Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation to come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

Second, keep every written communication. Emails, offer letters, WhatsApp chats — anything that shows the company's promises and its failure to follow its own rules. This type of matter — contract-based employment claims — requires an advocate who regularly handles contract disputes, not just family or property cases. Domain-specific experience matters because the evidence strategy focuses on the contract's language, admissions in emails, and the company's own conduct, which a general practitioner might miss.

Third, act fast. Limitation for a contract claim is three years from when the breach occurred — here, from when the full and final settlement was processed without the variable pay. Delay weakens your position.

Applicable Sections of Law

This is a civil contract claim, not a criminal one. The relevant provisions fall under the Indian Contract Act, 1872:

• Section 2(h) — defines a contract as an agreement enforceable by law. Your offer letter qualifies.
• Section 36 — an obligation to pay on a certain day or on a future event that might or might not happen. The "event" here was the work period, not a performance assessment.
• Section 73 — compensation for loss or damage caused by breach of contract. You can claim the unpaid amount plus interest.
• Section 65 — when a contract becomes void, any person who has received advantage must restore it. If the company says the variable component was void for lack of assessment, they must still account for the work done.

The Limitation Act, 1963, Article 55 (three years from breach) also governs.

Jurisdiction — Where to File the Case

For a civil suit to recover the variable pay, the jurisdiction is where the contract was performed or where the company's registered office is. Since the client worked in Pune and the startup's registered office is likely in Bangalore or Pune, a civil court in either city can hear the suit. The real point: file a legal notice to the company's registered address first. That gives them a last chance to settle before you approach the court. Jurisdiction matters because improper filing can get the suit dismissed on this technical ground alone.

Limitation Period

Under Article 55 of the Limitation Act, 1963, the limitation for a breach of contract claim is three years from the date the breach occurs. For variable pay, that date is typically when the full and final settlement was processed and the variable portion was omitted — or when the company last communicated its refusal. Missing this window can be fatal. If you're late, you can file an application for condonation of delay showing sufficient cause, but courts are strict. So don't wait.

Interim Reliefs Available

In a civil suit for money recovery, interim reliefs are limited compared to injunction cases. But you can apply for:

• Attachment before judgment under Order 38 Rule 5 CPC — if you can show the company may dispose of assets or leave the jurisdiction to avoid payment.
• Injunction under Order 39 Rules 1 and 2 CPC — rare for money claims, but possible if the company threatens to destroy documents or pay third parties while ignoring your claim.
• Status quo order — to prevent the company from altering the record of the variable pay in your settlement documents until the suit is resolved.

Getting an interim relief early puts pressure on the employer and shows the court you have a serious claim.

If You Are the Victim

• Send a written reminder by email and post — demand the variable pay with a 7-day deadline.
• Collect all documents: offer letter, emails, impact report, full and final settlement sheet, and any written admission by the company about the missing framework.
• Consult a lawyer who handles contract disputes — not just any generalist. Ask specifically about their experience with employment contract claims.
• Do not sign any settlement or release letter that waives your right to the variable pay until you have legal advice.
• Consider filing a complaint with the Labour Commissioner if your role falls under the definition of "workman" under the Industrial Disputes Act — but senior leadership roles usually don't.

Documents You Must Keep Ready

• Offer letter showing variable pay as part of CTC
• All emails between you and the company about variable pay, impact document, and the denial
• Full and final settlement statement
• Written queries you made before joining (especially the unanswered one about variable structure)
• Impact document you submitted (and proof of submission)
• Aadhaar and PAN card for identity
• Bank statements showing salary credits (to establish the work period)

What Evidence Is Required?

• Primary evidence: the offer letter itself — it's the core contract. Emails from the company or founders showing the denial and the reason.
• Secondary evidence: your own written record of verbal conversations (date, time, what was said), if no recording exists.
• Written admission by the company that no performance framework existed (e.g., "you were asked to suggest a framework").
• Proof that you served notice period but were asked not to (or that you waived it at their request).
• Any communication showing the company's erratic demands or harassment — though for the variable pay claim, focus on the contractual evidence.

How Courts Typically Approach Such Cases

Civil courts in India treat employment contracts like any other contract. The judge looks at the offer letter's plain language first. If it says "variable pay" without limiting conditions, the court presumes it's part of the consideration for work done. The company's defence — that it's discretionary or that no assessment was done — is scrutinised. Courts often ask: if the company never created the assessment process, whose failure was that? And they aren't sympathetic to an employer who uses its own failure as a shield. The court will also consider the company's conduct — did they ask for an impact document? Did they never raise performance issues? All this leans in your favour.

Timeline of Legal Process

• Step 1 — Legal notice: 1 to 2 weeks to draft and send. Response typically within 15 days.
• Step 2 — Filing of suit: if no settlement, file a civil suit in the appropriate court. This takes 2 to 4 weeks for drafting and filing.
• Step 3 — Summons and written statement: court issues summons; company has 30 to 90 days to file a written statement.
• Step 4 — Framing of issues and evidence: 3 to 6 months for framing issues and filing affidavits of evidence.
• Step 5 — Trial and arguments: 6 to 12 months for cross-examination and final arguments.
• Step 6 — Judgment: usually within 1 to 3 months after arguments.
• Step 7 — Execution: if you win and the company doesn't pay, you file for execution — another 6 to 12 months.

Total rough timeline: 12 to 24 months for a contested suit. But settlement at the notice stage can resolve it in 2 to 4 weeks.

Understanding the Costs

The total cost of a matter like this varies significantly from one case to the next — it depends on the complexity of the dispute, the forum involved, the number of hearings, and the specific facts of your situation. There is no single fixed figure that applies to everyone.

A professional advocate can give you an accurate estimate only after reviewing all your facts and documents in a consultation.

Can the Matter Be Settled Out of Court?

Yes, and it's the first and best option. Most employment contract disputes settle before litigation, especially if the company is still operating. You can approach the Labour Commissioner (if applicable) or a mediator, or simply exchange settlement terms through lawyers. A Lok Adalat can also take up pending civil cases for settlement, though it's less common for pure money claims. Settlement is advisable if the company offers a reasonable amount and you avoid litigation costs and delays. But don't accept a settlement that includes a gag clause or a waiver of other legitimate claims unless your lawyer advises it.

Common Mistakes People Make

• Waiting too long after the full and final settlement: every week you delay, your leverage diminishes. Act within a month.
• Signing a settlement or release letter without reading: some employers sneak in a clause waiving future claims. Never sign without a lawyer reviewing it first.
• Engaging an advocate without domain-specific experience: a general civil lawyer might miss how contract law applies to employment terms, or how to use the company's own admissions against it. An advocate who regularly handles contract-based employment claims knows the evidentiary nuances — like how an unanswered pre-joining email can be used to show lack of communication from the employer.
• Posting about the dispute on social media or LinkedIn: anything you say can be used against you in court as an admission. Keep it private.
• Communicating directly with the founders after denying claims: let your lawyer do the talking. Off-the-cuff comments can hurt your case.

FAQs People Normally Have

I was asked to resign. Does that affect my variable pay claim?

No. A company-initiated separation doesn't void a contractual promise to pay variable component. In fact, if the company asked you to resign, it may strengthen your claim that the termination was without cause.

My offer letter says variable pay is "subject to performance". Does that change things?

It does. If the letter uses that language, the company can argue it was conditional. But you can still argue that the company never defined what "performance" meant and never assessed it equally for all employees. It's harder but not impossible.

Can I claim interest on the unpaid variable pay?

Yes. Under Section 73 of the Indian Contract Act, you can claim interest from the date it became due. Courts often award 9 to 12% per annum, depending on the circumstances.

What if the company is shutting down or has no assets left?

That makes recovery difficult. Your claim becomes an unsecured debt. You can still file a suit to get a decree, but execution will depend on finding assets. Check with the Registrar of Companies for the company's status.

Do I need a lawyer in Pune if I'm based in another city?

For a legal notice, your lawyer can be anywhere in India. For filing a suit, you'd need a local counsel to appear in the court where it's filed. Many lawyers handle remote consultations for the notice stage.

This article is general legal information, not legal advice. Consult a qualified advocate about your specific situation.

Advocate Sudhir Rao, Supreme Court of India